It’s a delay for Jay as Dominion Diamond brings the Sable kimberlite forward

by Greg Klein

Its interests in two Northwest Territories mines make Dominion Diamond TSX:DDC the world’s third-largest rough producer by value. With Diavik’s demise expected in 2023, the company hoped to add 11 years to Ekati’s lifespan by bringing the Jay kimberlite into production. But now a change in plans defers Jay for another year to focus on the Sable pipe, which had a preliminary economic assessment announced September 10. This PEA, apparently, trumps Jay’s pre-feasibility, which as recently as January foresaw that kimberlite as a standalone operation.

Fully permitted, Sable has construction planned to begin as soon as the ice road opens, with kimberlite mining and processing projected to begin by 2019. Should Jay’s permits come through, Dominion hopes to begin its construction in H2 next year, but now adding a third year to the building timeline.

Sable’s addition makes little difference to Ekati’s lifespan, however. Jay was expected to last until 2030 at least. But Sable and Jay combined could keep the mine’s processing plant working at full capacity until 2033, even with Sable quitting operations in 2027. Although lacking a reserve estimate, the pipe shows indicated resources of 15.4 million tonnes averaging 0.8 carats per tonne for 11.7 million carats. The inferred category has another 300,000 carats.

Sable lies 17 kilometres northwest of Ekati’s existing infrastructure, within the mine’s Core zone joint venture where Dominion holds an 88.9% stake. The zone includes the Koala kimberlite, where underground mining takes place, Misery, which undergoes open pit expansion, Pigeon, another open pit undergoing pre-stripping, and Fox, a previously mined pipe with a remaining stockpile.

Even with Jay’s construction spread out over three years instead of two, Dominion sees synergies with Sable. “The projects are very complementary,” COO Chantal Lavoie told a September 11 conference call. They would “keep our production balanced with higher-value, higher-grade deposits, they will give us blending flexibility in the process plant and they will share the same mining fleet built around 240-tonne haul trucks.”

Using a 7% discount rate, Sable’s PEA projects a post-tax net present value of $233 million (all dollar figures American, except where noted) and a 17.3% post-tax internal rate of return. Those figures assume Sable fetching an average $190 per carat (last year’s global average was $116.17) and a U.S. dollar costing $1.25 in Canuck bucks.

Initial capex would call for $147.4 million.

The PEA evaluated Sable “as an incremental development opportunity” that includes Jay. “The NPV calculation represents the company’s share of the incremental NPV,” Dominion added.

Although Sable nears construction, the company has the pipe’s pre-feas underway. A possible economic enhancement might come from improved diamond liberation achieved at Ekati’s plant in July. Feasibility studies for Jay continue.

As for Diavik, a JV with 60% partner Rio Tinto NYE:RIO, Dominion expects its doom to be “done by 2023,” CEO Brendan Bell told the conference. “I think it’s been well explored. We’re not expecting any new work or new discoveries on the Diavik property.”

But elsewhere in the NWT? “We firmly believe there are more mines to be found in this jurisdiction and we’ll be focusing on that going forward.”